US Softlines Retail "SG&A Tracker: Deleveraging Continued in 1Q, but 2H2..."

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US Softlines Retail "SG&A Tracker: Deleveraging Continued in 1Q, but 2H2..."

persist in 2Q before inflecting to leverage in 2H26: +1-212-713 4856

Looking ahead, current sell-side consensus estimates imply that SG&A deleverage

should persist in 2Q26 before inflecting in the back half of the year. Consensus forecasts

SG&A dollars to increase +7.3% y/y in 2Q26, compared with sales growth of +4.3%,

implying SG&A as a percentage of sales rises +100 bps y/y to 35.1%. Our sense is that

companies continue to invest in advertising and other customer facing initiatives but are

trying to exercise tight control over all other expense lines within SG&A. That said,

consensus estimates indicate a meaningful inflection in 2H26 (Fig. 6). In 3Q26,

consensus expects SG&A dollars to decline -0.7% y/y while sales increase +4.1%,

driving approximately 150 bps of SG&A leverage. In 4Q26, consensus expects SG&A

dollars to rise +2.3% y/y versus sales growth of +4.1%, implying another 50 bps of

SG&A leverage. We note that consensus estimates for the y/y change in the SG&A rate

have on average trended ~60 bps higher than the actual change in the SG&A rate over

the last 5 quarters.

We don't envision a sales surprise causing more deleverage than expected:

While spending intentions look solid across all categories, we believe this is tempered by

US consumers concerns about inflation resulting from the Middle East conflict (link).

That said, we expect consumer sentiment to improve following the recently announced

US-Iran agreement and moderating gas prices. Therefore, we don't expect a big impact

to sales growth in Q2 from these disruptions. This should result in the industry reporting

2Q sales and SG&A rate in line with Street expectations.